Question: Anyway… regardless of whether you prefer new or used with a home, >> what should I look out for with home loans? Home loans seems to be one >> of those areas where people can be bamboozled, esp. first time buyers, >> because of all the jargon and options–making it, for a newbie, >> difficult to compare apples to apples. >. . .
>> Basically, I’d prefer using a local mortgage person–being new to home >> buying–but the frugal side of me is telling me to do my homework / >> “due dilligence” and look on-line / use one of those referral services >> like E-Loan / Lending Tree / etc.
>> Are there are “gotchas” to watch out for there? e.g. if you request >> quotes, and “banks compete” as the ad says, are you legally locked >> into picking one of the respondents?
>> What closing costs will a lender who wants my business “eat” / strike >> out?
>> I’m a member of a great municipal credit union, but a friend of mine, >> also a member, said he found a better deal through E*Trade loans–one >> of the online places. So I guess the common wisdom that using a credit >> union for most of one’s banking isn’t, after all, rock solid advice.
>Your best bet is to start by finding out what your credit union can offer >you, since it will give you a great baseline for comparison. Tell the loan >officer up front that you are starting to shop for a mortgage, and are not >ready to commit yet.
>Then go to E-loan, local mortgage brokers, local banks, or anywhere else you >want to shop. Again, tell each one that you are shopping, and are not ready >to commit. Do NOT tell them what others have offered you. While your real >estate agent and/or builder may have some bias, they may also have some good >leads.
>A few things:
> Ask the credit union loan officer to explain the tradeoffs between >interest rate and up-front “points.” The length of time you plan to stay in >the house makes a BIG difference in which way you should be biased. Same >goes for fixed vs adjustable rates — a lower rate now may turn into a >nightmare later.
> Don’t commit to a monthly payment higher than YOU want to pay. Lenders >will often “qualify” you for a loan that will make it difficult for you to >live after the payment.
> Watch out for “no closing fee” loans that simply roll all those fees >into the loan principal. You wind up paying interest on all those fees for >30 years! Also beware of interest-only or other “low cost” loans that do >not build up equity and may subject you to a huge “balloon” payment as >little as 5 years away.
> The “servicing” of your loan may be more important to you over the long >run than a few dollars a month in payment savings or a couple hundred >dollars in closing fees. Find out who will be the office/company that will >be your point of contact and handler for payments, escrow account, tax >statements, etc. Your loan is almost always sold to a 3rd party, but look >for a lender who will NOT sell the servicing (e.g., your credit union might >service all the loans it arranges).
> The funding of the escrow account for taxes and insurance can become a >problem if an unscrupulous lender/servicer pads the required payments. >Especially if the escrow account is not an interest-bearing account (i.e., >pays YOU interest on the $$ on deposit), make sure they don’t require an >excessive “reserve.” There are several common methods of calculating the >”reserve,” and a few of them are VERY unfavorable to the homeowner.
Answer: All good advice, but I wouldn’t horse around with internet lenders. A good loan broker will sit down with you – even meet you at a local restaurant on your lunch break. He will give you a *written* proposal with *all* costs detailed, and stick to it. It’s not exactly like looking into Putin’s soul, but you can normally tell if a man is honest by looking him in the eye. At least I hope you can. The guy I use always had the same costs at closing that he had written down for me. Shop. One thing I’d suggest is that you shop for a 30 year fixed with no prepayment penalties. That half point to go 15 year might look good, but things can change.
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